GINSMS Inc. ("GINSMS" or the "Company") (TSX VENTURE:GOK) has announced its
financial results for the fourth quarter and year ended March 31, 2012 and a
change in the Share Purchase Agreement related to its planned acquisition of
Inphosoft Group Pte Ltd.
PERFORMANCE HIGHLIGHTS FOR THE THREE AND TWELVE MONTHS ENDED MARCH 31, 2012
-- During the twelve-month period ended March 31, 2012, GINSMS incurred
substantially higher professional and consultancy fees resulting from
its planned acquisition of Inphosoft Group Pte Ltd, a Singapore IT
mobile middleware solutions developer for mobile network operators
("MNOs"), financial institutions, media companies and enterprises, for a
total consideration of $11.6 million, which has now been reduced to
$11.3 million (see below). This increase in professional and consultancy
fees combined with lower revenue affected EBITDA for the quarter ended
March 31, 2012 which dropped by $291,671 compared to a negative $325,987
during the corresponding quarter the previous year. For the twelve-month
period, EBITDA was a negative $345,348, compared to a positive EBITDA of
$15,847 for the corresponding period the previous year.
-- Volume of inter-SMS traffic for the three-month period ended March 31,
2012 was down by 25.8% to 28.2 million from the same period the previous
year. When compared to the previous quarter ended December 30, 2011,
traffic is down by 11.4%. GINSMS believes that this downward trend in
SMS traffic is partly caused by cellphone users migrating to mobile
instant messaging ("MIM") applications such as Research in Motion's
BlackBerry Messenger ("BBM"), Apple's Imessage or other cross-platform
mobile messaging applications such as WhatsApp. This migration enables
smart phone users to send MIM using device data channel or WI-FI.
-- Gross margin improved slightly during the fourth quarter to 55.0% from
50.5% during the corresponding quarter the previous due principally to
savings from the disposal of the K-Matrix platform. For the twelve-month
period, gross margin improved from 55.8% during the corresponding period
the previous year to 60.9%.
-- As a result of the expenses incurred for the acquisition of Inphosoft,
liquidity weakened with a working capital of $614,907 as at March 31,
2012, compared to $957,343 as at March 31, 2011. The working capital
ratio declined from 12.3 times at year-end to 5.1 times respectively.
SECTION 1.4: RESULTS OF OPERATIONS
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Three-month
period ended Year ended
March 31, March 31,
Financial Highlights (Unaudited) (Audited)
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2012 2011 2012 2011
Revenues $ 158,652 179,542 686,934 785,615
Cost of sales $ (71,378) (88,845) (268,454) (347,184)
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Gross profit $ 87,274 90,967 418,480 438,431
Gross margin 55.0% 50.5% 60.9% 55.8%
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EBITDA (1) $ (325,987) (34,316) (345,348) 15,847
EBITDA margin (205.5)% N/A (50.3)% 2.0%
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Net earnings $ (367,239) (60,616) (493,704) (96,536)
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Net earnings margin (231.5)% (33.8)% (71.9)% (12.3)%
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(1) EBITDA is a non-GAAP measure related to cash earnings and is defined
for these purposes as earnings before income taxes, depreciation and
amortization (share-based compensation included).
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Consolidated Consolidated Consolidated
as at as at as at
March 31, 2012 March 31, 2011 April 1, 2010
(Audited)(1) (Audited) (Audited)(2)
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Total assets $ 883,952 1,256,568 1,652,884
Total liabilities $ 157,577 108,119 315,917
Shareholders' equity $ 726,375 1,148,449 1,296,531
Net earnings (loss) per
share $
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Basic 0.00 0.00 0.00
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Diluted 0.00 0.00 0.00
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(1) The figures reported above are based on the consolidated interim
financial statements of the Company which have been prepared in
accordance with international Financial Reporting. An explanation of
how the transition to IFRS has affected the reported financial
position, financial performance and cash flows of the Company is
provided in notes 15 of the financial statements.
(2) The figures reported above are based on the Company's opening IFRS
statement of financial position at that date as required by the rules
for presentation of the interim financial statements under IFRS for the
first time. There were no adjustments to the financial position of the
Company under IFRS as compared to under Canadian GAAP except for the
Accumulated Comprehensive Loss which was charged to Retained Earnings.
Under IFRS 1, the Company is allowed an option exemption to deem the
cumulative translation differences for all foreign operations to be
deemed $nil at the date of transition to IFRS, with future gains or
losses on subsequent disposal of any foreign operations to exclude
translation differences arising from periods prior to the date of
transition to IFRS. The Accumulated Comprehensive Loss as at March 31,
2010 amounted to $165,732.
Financial Review for the Three- and Twelve-Month Period ended March 31, 2012
The table below outlines the changes in the major categories:
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Three month Three month Twelve month Twelve month
period period period period
March 31, March 31, March 31, March 31,
2012 2011 2012 2011
$ $ $ $
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Selling, General & Admin 413,261 125,013 763,828 422,584
Amortization 26,148 25,509 103,077 105,906
Net Earnings (loss) per
share
Basic (0.01) (0.00) (0.01) 0.01
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Diluted (0.01) (0.00) (0.01) 0.01
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Revenue for the third quarter ending March 31, 2012 was $158,652, representing a
reduction of 11.6% over revenue of $179,542 reported during the same three-month
period the previous year. The reduction in revenue is due essentially to a 25.1%
drop in SMS traffic during the quarter, compared to the corresponding quarter
the previous year. As noted above, GINSMS believes that the lower trend in SMS
traffic is partly caused by cellphone users migrating to MIM applications such
as Research in Motion's BBM, Apple's Imessage or other cross-platform mobile
messaging applications such as WhatsApp, IM+, Skype or Google Talk. Given that
most smart phone users now have inclusive data plans they can forward their MIM
at a fraction of the cost required to send an SMS. In addition, Hong Kong MNOs
have been upgrading in the last two years their networks from 2G to 3G causing
network down time and interruptions. Finally, aggressive relay fee promotions
adopted by GINSMS' competitors added downward pressure on SMS traffic volume.
Management anticipated this downward trend in SMS traffic and took steps to
encourage SMS usage through, in part, the implementation of a new pricing
structure and the introduction of bundled fees. GINSMS' management also believed
that the addition of VAS to its service offering would create new revenue
streams and stimulate growth. To this end, GINSMS initially decided in 2010 to
acquire an e-mail marketing platform called K-Matrix eM developed by K-Matrix
Group, a Hong Kong based developer of analytics tools and systems for gathering
digital intelligence. This platform however eventually proved to be too onerous
to implement and was later abandoned.
Following GINSMS' decision not to proceed with the acquisition of the K-Matrix
marketing platform, GINSMS initiated discussions with Inphosoft Group Pte Ltd
("Inphosoft"), a Singapore IT mobile middleware solutions developer for MNOs,
financial institutions, media companies and enterprises which provides
innovative mobile data services and solutions. These discussions led on January
12, 2012 to a definitive agreement between the two parties whereby GINSMS will,
subject to regulatory and exchange approval, acquire 100% of the shares of
Inphosoft for a consideration of $11.6 million.
With the addition of Inphosoft, the Company will be able to immediately
introduce a series of VAS that will enhance GINSMS' product offering and
transform it into an innovative revenue-powering mobile service and solution
provider. GINSMS expects that the acquisition will boost its revenue in Hong
Kong and create renewed interest on its IOSMS platform. The acquisition of
Inphosoft will result in synergies and immediate cost savings as Inphosoft is
expected to take over software maintenance work associated by the Company's
IOSMS platform.
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Comparisons of Traffic (Inter-SMS) and Total Charges for Past Eight Quarters
Q1/FY11 Q2/FY11 Q3/FY11 Q4/FY11
Traffic 34,401,824 34,007,952 32,678,329 31,431,278
% increase -1.0% -.1.0% -.96% -.96%
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Q1/FY12 Q2/FY12 Q3/FY12 Q4/FY12
Traffic 33,701,750 34,371,080 28,232,252 25,013,562
% increase 7.2% 1.9% 17.9% -11.4%
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Net income for the quarter dropped by more than 500% to $367,239. This is due to
two main factors (i) a near five-fold increase in professional fees and (ii) a
four-fold increase in consultancy fees. The length and complexity of the
negotiations leading to the acquisition of Inphosoft and the requirements and
conditions imposed by the securities regulation and the TSX Venture Exchange
("TSXV") on GINSMS to complete the acquisition of Inphosoft have resulted in a
substantial increase in the professional fees of GINSMS which jumped from
$48,030 in the fourth quarter of fiscal 2011 to $258,439 during the fourth
quarter of the current fiscal year. Also as a result of the contemplated
acquisition and the need to obtain the services of an agent, namely Raymond
James Ltd, and a business valuation firm, namely BDO Canada LLP, as required by
the TSXV, consultancy fees also increased substantially, jumping from $21,233 in
the fourth quarter of fiscal 2011 to $84,146 during the fourth quarter of fiscal
2012.
The increase in professional and consultancy fees accounted for 89.2% of the
increase in the loss of $367,239 recorded in the fourth quarter this year. Also
affecting results in the fourth quarter is a share-based compensation charge of
$29,429. This larger-than-normal quarterly charge is the result of a resolution
by the Board of Directors in January 2012 modifying the initial vesting period
of the options granted to the directors of the company to make such options
immediately vested and exercisable. Salaries and wages were up by 44.6%, the
result principally of an increase in the workload due to the planned acquisition
of Inphosoft, necessitating a temporary adjustment in compensation.
For the twelve month period ended March 31, 2012, revenue dropped by 12.6% to
$686,934, compared to the corresponding period the previous year. The drop in
revenue reflect the 4.3% decline in SMS traffic during the twelve-month period
ended March 31, 2012, compared to the same period the previous year. As
mentioned previously, GINSMS believes that this downward trend in SMS traffic is
partly caused by cellphone users migrating to MIM applications.
Net losses for the twelve-month period this fiscal year were $493.704, an
increase of 411% over the losses of $96,536 recorded during the corresponding
quarter the previous year. Gross profit increased from 55.8% to 60.9%
accompanied by a 22.7% drop in the cost of sales due in part to the cancellation
of the purchase of the K-Matrix eM marketing platform which did not meet the
Company's expectations. The main reason for the increase in losses was the
substantial increase in professional and consultancy fees incurred by the
Company with respect to the acquisition of Inphosoft which increased by 164.2%
to $460,182. Share-based compensation charge totalling $43,727 also negatively
affected results more than usual as explained above.
EBITDA (earnings before interest, taxes, depreciation and amortization) is a
useful indicator in measuring the Company's ability to sustain long term viable
operations while resources are used to grow the Company in a difficult
environment. EBITDA for the three-month period ended March 31, 2012 amounted to
a negative $325,987, compared to a negative EBITDA of $34,316 for the
corresponding period the previous year. For the twelve-month period also ended
on March 31, 2012, EBITDA was a negative $345,348, compared to a positive
$15,847 the previous year. The incidence on net earnings resulting from the
substantial increase in both professional and consultancy fees is the main
reason for the drop in EBITDA for both periods.
On July 24, 2012, as agreed between the parties, the Share Purchase Agreement
has been amended to reflect a reduction in the purchase price of $300,000 for an
aggregate consideration of $11.3 million. In the previous Share Purchase
Agreement, the cash portion of the transaction was set at $1.1 million, $700,000
payable upon the closing of the transaction and $400,000 within a period of 30
days, failing which this amount would be converted into a non-bearing promissory
note. With this amendment, both parties also agreed to reduce the cash portion
immediately payable upon the closing of the transaction to $400,000. The payment
date of the remaining $400,000 has been extended until after the first
anniversary of the transaction closing date. The rest of the Share Purchase
Agreement which includes the issuance of non-interest bearing convertible
debentures for an aggregate principal amount of $10.5 million does not change
and remains binding upon the parties.
Forward-Looking Information
Certain information included in this press release may constitute
forward-looking statements. Forward-looking statements generally can be
identified by the use of terms such as "may", "could", "will", "expect",
"intend", "estimate", "anticipate", "believe" or "continue" or the negative
thereof or variations thereon or similar terminology. Forward-looking
statements, by their very nature, involve significant risks, uncertainties and
assumptions. A number of factors could cause actual results to differ materially
from the results discussed in the forward-looking statements, including, without
limitation, the risks factors discussed in the section entitled "Risk Factors"
in GINSMS's long form prospectus dated November 12, 2009 which is available
under GINSMS's profile on SEDAR at www.sedar.com. Although the forward-looking
statements contained herein are based upon what management believes to be
reasonable assumptions, GINSMS cannot assure the reader that actual results will
be consistent with these forward-looking statements. These assumptions are
further described in GINSMS's management discussion & analysis for the three and
twelve-month periods ended March 31, 2011, which is also available on SEDAR at
www.sedar.com. These forward looking statements are made as of the date hereof
and GINSMS assumes no obligation to update or revise them to reflect new events
or circumstances except as may be required by law. Accordingly, readers should
not place undue reliance on the forward-looking statements.
About GINSMS
GINSMS owns 100% of Global Edge Technology, a technology company focused on
providing inter-operator short messaging services to mobile telecom operators in
Hong Kong. GINSMS's stated business objective to become a leading short
messaging service ("SMS") and data hubbing service provider to mobile network
operators in Hong Kong and China and to establish an international SMS and value
added services business.
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